Retirement Options for Small Business Owners and Employees

Once upon a time in America, employees could count on an employer to ensure a comfortable retirement. Originally in the form of pension plans these programs helped secure retirement savings for generations.

However, 100% employer-supported retirement options have become nearly extinct with the changing nature of modern work, the move to 401k funded “shared” contribution options, the advent of the “gig” economy, the freezing of most—if not all—traditional benefits plans, and the rising cost of offering plans for small business employers. Consider that while 98% of larger companies offer a retirement plan (typically 401k only), only 53% of companies less than 100 employees offer a retirement savings plan and that number shrinks to 20% for those with less than 50 people.

Small business employ over 40 million in the U.S., which means a significant percentage of the workforce doesn’t have an opportunity to save through work sponsored programs, and  if you don’t save through work, you’re likely not to save at all. The result has been catastrophic for employees and their retirement futures. A recent study from Northwestern Mutual found the average retirement savings for an individual is only $84,000, far below the needed level for a well-funded, secure retirement.

Fortunately, the tide is turning for small businesses to reverse this trend and help employers deliver compelling and cost-effective retirement options for employees. Companies must be aware and aggressive in taking advantage of these changes.

Government steps up: A recently announced Executive Order signaled the Federal government’s intent to broaden access to 401k savings options for small businesses. This is similar to the June 2018 change that helped small businesses gain affordable access to employee health plans through the expansion of Association Health Plans; the new order  encourages the establishment and expansion of Association Retirement Plans (also known as Multiple Employer Plans or MEP).

An Association Retirement Plan (ARP) would allow small businesses to band together as a group to collectively source more cost-effective 401(k) solutions for its members, bringing large company 401k cost and compliance structures down to the smallest of companies. These plans have the potential to dramatically expand small business based employer-sponsored retirement saving options to millions of employees formerly excluded from doing so. It’s good news for the small business community and great news for workers.

State governments are also joining the fight. In 2017 alone, at least 22 states and cities introduced legislation to address the retirement savings gap among private-sector workers with 11 programs having already launched live.

These states and cities are encouraging the expansion of small business supported savings plans for workers. In general, these efforts revolve around a minimum standard of employee contribution and are typically designed as Roth individual retirement accounts (IRAs). They aim to be low-risk investments that may be mandated for businesses of a certain size, but that allow employees to opt-out. The goal is to extend coverage to more people to improve savings opportunities, while minimizing investment and management costs for businesses.

The future looks bright: Both the Federal Government’s encouragement of collective sourcing of 401k solutions for small businesses through Association Retirement Plans, and state and city efforts to encourage employee savings through IRAs, deliver expanded solutions for small employers to the benefit of their employees for long term savings and retirement preparedness.  We expect legislative and regulatory development of required and/or voluntary small business retirement savings options for small business to continue to expand.

As with recent, similar small business AHP health plan changes, small business owners and HR teams should begin planning now to take full advantage of this opportunity. AHPs are already delivering tremendous savings and opportunities to Associations and Franchises nationally. Combined with rapidly emerging Association Retirement Plans, small businesses through their trade and franchise associations are experiencing a renaissance in availability and affordability of medical and other benefits.

Small businesses should begin looking to AHPs for a model of what to expect with ARP. Engage with legal teams and benefits providers now to lay the groundwork for forming an association. By putting in the time and effort today, you can gain a jump on your competition and do right by your workers tomorrow.


Chris Duncan is the EVP & COO of Decisely, an insuretech firms specializing in small business solutions for brokers, associations and franchises.


Originally published at Small Biz Daily on October 29, 2018.